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To lower the administrative costs, the best op~)ortunity is to consider a self-funded <br />contract. What is a self-funded contract? <br /> <br />A self-funded contract allows the County to contract with a third-party, in this <br />case CIGNA, to pay the health care claims according to the benefit design that <br />you establish. <br /> <br />2. For claims that exceed the expected claim levels, the County will purchase stop- <br /> loss insurance from CIGNA. <br /> <br />Stop-loss coverage is comprised of specific and aggregate coverage. The specific <br />stop-loss coverage pays for covered individual claims that exceed $100,000. The <br />aggregate stop-loss coverage pays for total claims that exceed 125% of expected <br />claims. <br /> <br />The renewal that CIGNA has suggested is based on the expected claims, plus <br />administrative costs for CIGNA to adjudicate the claims, and to pay the stop-loss <br />costs. <br /> <br />The suggested rates do account for the establishment of a reserve (they are mature <br />numbers). The purpose of the reserve is two fold; one is to fund the difference <br />between the expected claims and the attachment point if the claims are in excess <br />of CIGNA's estimate. This would only occur if CIGNA's projections were <br />inaccurate. The second purpose of the reserve is fund claims after the plan year <br />ends if you decide to switch back from a self-funded contract to a fully insured <br />contract. <br /> <br />What are immature versus mature claims? In first year of a new self-funded <br />contract, the first few months of claims activity is not indicative of the true claims <br />level that the County will experience. The reason is by the time the claim is <br />processed by the provider, processed by the payor, and the actual claim check cut, <br />some time will have elapsed. Only after a couple of months have elapsed will you <br />see the true claims level. This claim lag is especially true when one is <br />transitioning from an insured contract to a self-funded contract. CIGNA is paying <br />the runout claims and thus, the County will have an mature year in the 2004 - <br />2005 plan year. Below is an example of immature versus mature: <br /> <br />Immature <br /> <br />E_~ected Claims <br /> $300,000 <br /> $250,000 <br /> $200,000 <br /> $150,000 <br /> $100,000 <br /> <br />2 <br /> <br /> <br />